When the world's largest holder of foreign exchange speaks, Europe listens. And during his visit to Europe, the Chinese premier, Wen Jiabao, repeated the position that China was a long-term investor in Europe.

"China has actually increased the purchase of government bonds of some European countries, and we haven't cut back on our euro holdings," Wen stated in a BBC interview. These acts "show our confidence in the economies of Europe and the eurozone".

Of course, it isn't clear how much Greek, Portuguese and Irish debt China actually has, since its foreign exchange reserve holdings are a state secret, but it has invested peripherally in Europe, notably Greek ports. Europe must also get used to managing relations with the world's second largest economy, whose policies are largely driven by internal development needs: per capita incomes in China are still but a tenth of those in the west. The desire to gain market footholds for its firms, particularly in developed economies, is what drives policy.

China has been aiming for some time to diversify out of US Treasury bonds due to worries about the American fiscal position. But the euro debt crisis has also raised concerns about the eurozone. Thus, the recent thrust of Chinese policy has been to use foreign exchange reserves to finance investments by Chinese companies overseas instead of acquiring government debt. This change helps to promote the country's multinational corporations, which is the goal of the "going global" policy launched in 2000, the linchpin of China's growth strategy.

China recognises that its growth will slow in the coming decades, and it is wary of falling into the "middle income country trap". It therefore wants to upgrade technologically, have globally competitive firms and sponsor greater innovation, which requires having firms that operate, compete and learn in developed markets. This is the trait shared by those countries that have joined the ranks of rich nations, such as Japan, South Korea and others – and China is keen to do the same.

Europe offers a number of opportunities. There is lower credit availability in the post-crisis environment and the euro debt crisis has made a number of assets ranging from Greek state-owned companies to Irish and Spanish banks available to investors. Europe is China's largest trading partner, so China has an interest in its stability. Investing in these countries gives Chinese firms entry into the EU single market, the largest economic bloc in the world. Politics within the EU is also fragmented, allowing individual negotiation with each country and making the type of political resistance seen in the US less likely. Keep in mind the number of failed bids by Chinese firms in the US, ranging from Unocal to Maytag to the Huawei overture.

For Europe, China offers a source of much-needed capital and a symbolic confidence boost. Also, it's important for the euro to retain its 30% or so of global reserve holdings as that demand helps to keep down yields and borrowing costs for its strong economies, like Germany. In fact, the euro hasn't lost very much of its share of global reserves over the past year, despite the worsening crisis.

But China has other ambitions too. Over time, the "internationalisation" part of yuan policy is intended to propel the Chinese currency to global reserve status. That ambition, plus the aim to invest rather than buy government debt, means that over the coming years China's impact could change dramatically.

In the meantime, Europe is confronting a China with significantly more clout. It is often said – though not often enough – that China may be a major economy, but it is also a developing country run by the Communist party, which views its mission as delivering sustained economic development.

For Europe to benefit from China's rise would require an in-depth understanding of China's aims and political constraints. Presenting a united front and realising that China needs the know-how to operate in, as well as access, European markets will be key.